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प्रश्न
State the limitations of straight-line method of depreciation.
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उत्तर
Following are the limitations of straight-line method of depreciation:
- Ignores the actual use of the asset:
Under this method, a fixed amount of depreciation is provided on each asset by applying the predetermined rate of depreciation on its original cost. But, the actual use of the asset is not considered in the computation of depreciation. - Ignores the interest factor:
This method does not take into account the loss of interest on the amount invested in the asset. That is, the amount would have earned interest, had it been invested outside the business is not considered. - Total charge on the assets will be more when the asset becomes older:
With the passage of time, the cost of maintenance of an asset goes up. Hence, the amount of depreciation and cost of maintenance put together is less in the initial period and goes up year after year. But, this method does not consider this. - Difficulty in the determination of scrap value:
It may be quite difficult to assess the true scrap value of the asset after a long period say 10 or 15 years after the date of its installation.
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संबंधित प्रश्न
Answer in One Sentence only:
What is Fixed Instalment Method?
Write the word/term/phrase which can substitute the following statement:
The method of depreciation in which the rate of depreciation is fixed but the amount of depreciation reduces every year.
Write the word/term/phrase which can substitute the following statement:
Method of depreciation that cannot reach to zero value.
If the total charge of depreciation and maintenance cost are considered, the method that provides a uniform charge is ______.
Calculate the rate of depreciation under straight-line method from the following information:
Purchased second-hand machinery on 1.1.2018 for ₹ 38,000
On 1.1.2018 spent ₹ 12,000 on its repairs
Expected useful life of the machine is 4 years
Estimated residual value ₹ 6,000.
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M/s Sitaram and Co Purchased a Machinery on 1st January 2016 for ₹ 2,00,000. The company provides depreciation @ 10% p.a. on Reducing Balance Method on 31st March every year. Calculate Written Down Value of Machinery as of 31st March 2017.
On 1st April 2015, Farid of Nasik purchased a Motor Car for ₹ 55,000. The scrap value of the Motor Car was estimated at ₹ 10,000 and its estimated life is 10 years. The Registration charge for the Motor Car was ₹ 5,000.
Show Motor Car Account for first four years, assuming that the books of accounts are closed on 31st March every year.
Sameer & Company, Mumbai purchased a Machine worth ₹ 2,00,000 on 1st April 2016. On 1st July 2017, the company purchased an additional Machine for ₹ 40,000.
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Show the Machinery Account and Depreciation Account for the first three years ending 31st March 2016-17, 2017-18 and 2018-19
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